Silvergate Bank, based out of La Jolla, CA, is preparing to go public with a price target of $50 million, according to the documents filed and submitted to the securities regulators. It would be listed in the New York Stock Exchange (NYSE) under the ticker “SI”. The bank is a part of the holding company, Silvergate Capital.
Traditional Bank to Crypto-Finance
The bank was a traditional business bank just a few years back. Now it is one of the most preferred financial institutions for digital currency companies.
According to the company prospectus, they seek the required funds to further organic growth of the company and for corporate purposes. These include paying off long-term debt and acquisitions in the future. However, there are no plans of current acquisitions, clarified people familiar with the matter.
In 2013, Silvergate CEO Alan Lana got intrigued by the new technologies, which marked the bank’s move towards the risky cryptocurrency business. The company identified a service gap in the industry – companies operating in digital currencies would require financial services like the traditional system. It was a bold move in light of the wild swings in the value of various digital currencies.
In 2014, Silvergate signed its first customer in the segment, the Digital Currencies Group. As of September 30 this year, Silvergate had 483 digital currency customers. The number was at 114 last year. The total amount of non-interest bearing deposits from these customers was up to $1.76 billion in September, from $609 million last year. The net income generated has more than doubled from $5.7 million to $14.3 million.
Silvergate recently conducted a private stock placement for strategic investors, of which DCG was a part, which netted north of $100 million.
The prospectus claims that Silvergate has been able to address the dynamics of this market for the last five years, which has given them the first mover’s advantage in the digital currency industry, which in turn is the cornerstone of their current position.
The bank recently rolled out a proprietary network which provides 24×7 and practically instant movement of US Dollars between investors and digital currency exchanges. This was a tangible improvement over the conventional medium of wire transfers and other electronic transfers, which takes hours, sometimes even days.
Over the last few years, Silvergate’s model of business has shifted from the traditional focus on loan generation to increasing non-interest bearing deposits, which are mainly made by digital currency customers, which they either deposit into interest accounts of other banks or lend it or invest it.
Big Hope for Silvergate
At the end of 2013, the top five cryptocurrencies were worth $10 billion. By September 30, the value was at $175 billion. Silvergate estimates the market of financial services for digital currency companies to be $30-$40 billion.
Most financial institutions have steered clear of the troubled waters of digital currencies and blockchain. However, a few decided to dabble.
The Boston-based financial services giant, Fidelity, is experimenting with the technology. CEO Abigail Johnson revealed that they had a team working on a project on digital currency and blockchain, at the company’s headquarters at Boston Fintech Week Conference. No further details were divulged.
Also, Goldman Sachs had announced the plans of opening a trading desk for cryptocurrencies. It was, however, scrapped later on.
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